Obama outlines plan to cut college costs. Could it backfire on students?

President Obama Friday made a set of bold proposals to tie federal aid to efforts by states and colleges to keep tuition under control and provide a good value to students.

Obama called for a $1 billion Race to the Top competition to reward states that do more to make college affordable and help students earn degrees on time – echoing his competitions among states for K-12 grants tied to education reform.

The president would also restructure how $10 billion of federal financial aid is annually distributed to campuses, to give incentives to colleges and universities to keep down their net price – what students pay after aid is taken into account.

“Higher education is not a luxury, it’s an economic imperative that every family in America should be able to afford,” Obama said before an enthusiastic crowd at the University of Michigan in Ann Arbor Friday morning, one of a series of speeches he’s giving in swing states this week.

“We are putting colleges on notice: You can’t assume that you’ll just jack up tuition every single year. If you can’t stop tuition from going up, then the funding you get from taxpayers each year will go down,” he said. “States also have to do their part … by making higher education a higher priority in their budgets.”

Most of Obama’s ideas would require approval from Congress, which would be difficult given the polarized environment in Washington.

In principle, some of the proposals make good sense while others may have unintended consequences, says Sandy Baum, a higher education analyst and senior fellow at George Washington University School of Education.

“It’s a good idea for the federal government to provide incentives for states and public institutions in particular to find innovative ways to provide quality education at lower costs,” Ms. Baum says of the Race to the Top proposal.

She also agrees that the current formula for distributing campus-based financial aid is out of date and needs to be revised.

But “taking [aid] money away from the students who are going to college in states that are raising their tuition just doesn’t seem very constructive,” Baum says. The federal incentive probably wouldn’t be enough to offset state budget problems that led to tuition increases in the first place, and some students wouldn’t enroll in college at all if less aid were available to them at their local public institution, she notes.

Here are more details of Obama’s proposals, according to a White House fact sheet:

Restructuring aid distribution:

Colleges that restrain net tuition, prepare students well for employment, and serve higher numbers of financially needy students would be poised to receive more aid. The shifted aid would come from three sources: Supplemental Educational Opportunity Grants, Perkins Loans, and Work Study. There would be no additional cost to taxpayers, the White House says.

Race to the Top:

Some states would receive a share of $1 billion based on the following actions: restructuring state financing of higher education to promote cost savings; maintaining adequate funding levels so that campuses won’t feel pressured to increase tuition so drastically; and making sure K-12 schools and colleges align their standards so students are prepared to graduate from college on time.

First in the World competition:

Fifty-five million dollars would be set aside to help campuses pursue innovations to boost productivity and quality. Examples include redesigning courses to take advantage of technology, and early-college programs for high-schoolers to reduce the need for remedial courses in college.

College Scorecard:

Obama's plan would create a better way for families to compare financial aid packages, and begin collecting colleges’ record of employment among their graduates.

Obama also reiterated calls he made on Congress during Tuesday’s State of the Union address to double the number of campus work-study jobs for students over the next five years, keep interest rates low on some student loans that are set to double this summer, and maintain tax credits for families paying tuition.

The Republican leaders of the House Education and the Workforce Committee issued a statement earlier this week responding to the loan-rate issue. It said the doubling would happen with the sunsetting of a reduction in rates passed by the Democratically controlled Congress in 2007. They “chose to make false promises to borrowers and kick the can down the road,” the statement said.

Agreeing that more needs to be done to keep college affordable, the Republicans on the committee called on Obama to work with Congress to improve transparency in higher education and “reduce unnecessary regulation.”